CSE responds to United States OPIC and Exim Bank – on the use of climate finance to kill the Indian solar panel industry

The United States Overseas Private Investment Corporation (OPIC) and the US Exim Bank have evaded any response to the central contention of the recent release from Centre for Science and Environment (http://www.cseindia.org/content/us-using-climate-finance-kill-indian-sol... ). Both have chosen to remain silent on use of climate ‘fast start financing’ to give subsidised loans to Indian project developers who buy equipment from US producers, thus undermining the Indian domestic manufacturing industry.

Under the Copenhagen Accord adopted in December 2009 climate meeting, ‘fast start financing’ is supposed to be: “Scaled up, new and additional, predictable and adequate funding as well as improved access shall be provided to developing countries, in accordance with the relevant provisions of the Convention, to enable and support enhanced action on mitigation…”. Subsidised loans from OPIC and Exim Bank can neither be called new nor additional. It is ethically wrong for an institution like Exim Bank, with has an explicit mission to finance projects that benefit US exports, to count this financing under climate ‘fast start finance’ which were supposed to be trust building measures between developed and developing countries. On the contrary, these very cheap loans are destroying the Indian manufacturing sector while helping US manufacturing industry -- and also additionally touted as US climate finance commitment! And most certainly, such cheap loans and mandatory requirement to buy from US manufacturers is not in the spirit of the United Nations Framework Convention on Climate Change.

Both banks have remained silent on the issue of counting the entire amount of loan as aid under climate finance, instead of the difference between interest rates in subsidised loans and commercial loans. This is nothing less than creative accounting.

“Companies compete against companies and not against countries,” -- an Exim Bank spokesperson has been quoted in media stories. If that were the case, then why did the US government put anti-dumping duties on Chinese manufacturers of solar equipment? And if the same logic is followed, there is a strong case for putting anti-dumping duties on US manufacturers in India as they are also getting an unfair advantage of cost benefit compared to Indian manufacturers.

According to an OPIC spokesperson quoted in media reports, “And as a matter of agency policy, OPIC only provides financing for a project when it is unavailable from local or foreign private-sector financial institutions. In other words, we don’t compete with local markets.” But in India, OPIC is competing with domestic financial institutions as loans from domestic institutions for solar sector are certainly available, albeit at a much higher rate. So by providing loans at a cheaper rate, the American banks are edging out Indian manufacturers.